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Why the Coca-Cola Amatil share price is at a 52-week high

Sebastian Bowen
coke

The markets had a surprisingly good day yesterday, with the S&P/ASX 200 (INDEXASX: XJO) booking a 1.35% gain to finish the day at 6,826 points.

After fears over rising tensions between the US and Iran gripped global markets, we had a pretty torrid start to the week, so yesterday’s gains would have helped investors breathe a fleeting sigh of relief.

What was even more surprising was the share price of Coca-Cola Amatil Ltd (ASX: CCL), which yesterday booked a 4.91% gain to finish the day at $11.54, after reaching as high as $11.60 just before market close.

It’s a new 52-week high for the soft-drink bottler – and is also CCL’s highest share price level in 6 years.

What makes this move a little odd is that there were no major announcements by the company – or any company news at all – that might have explained such a decisive share price movement.

In fact, just last week, Citi bank put out a broker note with a ‘sell’ rating on CCL shares and a $9.70 price target, noting the possible negative impacts that might come from implementation of a container deposit scheme in Victoria.

So why are CCL shares trading at 52-week highs?

Well, I think the answer is the hunt for ‘safe’, defensive and reliable yields that the current low interest rate environment is fostering.

If we look at companies like Woolworths Group Ltd (ASX: WOW), APA Group (ASX: APA) and Sydney Airport Holdings Pty Ltd (ASX: SYD), all 3 stocks are trading with abnormally high price-to-earnings ratios these days. WOW shares are going for 32.5x earnings at the current time. APA shares are asking 46x earnings, while SYD is sitting on 49x.

Coca-Cola Amatil shares are still only trading on 28.9x earnings, but this ratio is still high for a lower-growth company like Coca-Cola and has also been steadily climbing over the past year.

The company also pays a solid 4.07% dividend yield on current prices, which has also been steadily rising over the past few years.

During times of economic downturn or recession, consumers are unlikely to stop treating themselves with a Coke, flavoured milk, iced coffee or any other of the drinks that Coca-Cola produces, making the company’s earnings (and dividends) somewhat recession-resistant. This makes Amatil a defensive consumer play and is what I believe is attracting investors to CCL shares in this brave new world of low interest rates.

The post Why the Coca-Cola Amatil share price is at a 52-week high appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020